Great piece by Milwaukee-based Hi Mount Research "The “Time in the Market vs Timing the Market” charts are making the rounds again. They are often put together by the Marketing departments of Bay and Wall Street firms to induce a little fear of missing out and thereby keeping investors sitting on their hands through the ups and downs of a market cycle. The arithmetic used to produce these charts is sound. If you miss too many of the best days in the market (but stick around for the worst days) your cumulative gains evaporate rather quickly. On the other hand, if you sidestep just the worst days but fully participate in the best days, your cumulative gains soar. The market logic of just missing the best days (or just missing the worst days) is faulty. No one is so perfectly bad or so perfectly good at reading the environment that they will be missing out on just the best days or avoiding just the worst days. We do, however, know that the best days and the worst days often cluster together in periods of elevated volatility. So, if we are missing some of the best days, we are probably also missing some of the worst days. The marketing departments for the big firms won’t tell you this, but I will: missing equal numbers of the best days and worst days will tend to increase returns and reduce overall volatility. The more volatility you miss, the better the investing experience. That means both a smoother ride and a better destination. While that is a market fact, it is not an implementable strategy. But we know that these best day/worst day clusters are not random. They occur during periods of elevated volatility and those tend to occur during downtrends in the market. Increasing equity exposure during periods of trend strength (e.g. when the 200-day average is rising) and reducing equity exposure during periods of trend weakness (e.g. when the 200-day average is falling) is an implementable strategy and achieves the goal of largely sidestepping both the best and worst days in the market. When we let go of the fear of missing out and embrace the longer-term trends, we can avoid volatility and sleep better at night, whether we are spending our time in the market or out of the market." This is a core belief of ours at The Newton Group.

Should you have any questions or concerns, please feel free to reach out.

Portfolio Notes

(+) indicates a positive development, (-) indicates negative, and (~) indicates neutral

(~) Alimentation Couche-Tard (ATD-T) Couche-Tard made a bid for Seven & i, the Japanese convenience store chain operator currently valued at more than $38 billion, in what would be the largest foreign takeover of a Japanese company. A similar plan by the Canadian firm to buy Carrefour was shot down by France in 2021. While the news that ATD has made a confidential, non-binding and preliminary proposal to acquire 7-Eleven stores, may come as a surprise, the approach is steeped in Couche-Tard DNA: it is bold, it is measured, and if successful (a big "if") would be the culmination of a journey to become the largest c-store operator in the world. As with all transactions, we would expect ATD to remain true to its proven disciplined approach to creating shareholder value. In our view, the relatively muted share price reaction is a reflection of investor support of an ATD transaction in the space offset by significant uncertainty around the complexion, value and timeline of a potential combination. In a separate announcement, ATD will acquire GetGo Cafe + Markets, 270 convenience retail and fuel locations in Pennsylvania, Ohio, West Virginia, Maryland and Indiana from Giant Eagle. GetGo operates both open-concept and standalone kiosks with an extensive menu of made-to-orders foods. The simultaneous pursuit of both tuck-in and extremely substantive M&A is something ATD has done throughout its history. ATD will release earnings on September 4th. Owned in Core and ESG+ Portfolios.

(+) Dollarama (DOL-T) RBC is taking its target price up for the retailer ahead of the quarter as it rolls forwards valuation. The thesis is unchanged, consumer trade down in light of elevated consumer leverage and softening economy should keep sales strong, solid visibility into earnings, return of capital and the optionality of Dollar City, with its planned expansion into Mexico beginning in 2026. Valuation remains a sticking point with DOL at 19.8x consensus NTM EV/EBITDA vs its 1-, 3-, and 5-year averages of 17.3x, 16.6x and 15.9x, respectively. Nevertheless, with consumer purse strings likely to remain tight for the next couple of years at least, we wouldn’t be surprised if valuation remains elevated through this period. Owned in Cash Flow Portfolio.

(+) Palo Alto Networks (PANW-US) The cybersecurity stock surged after earnings, with shares just below all-time highs. The company reported adjusted earnings per share of $1.51 on revenues of $2.19 billion, topping analyst expectations of $1.41 and $2.16 billion. Management’s controversial “platformization” strategy, which aims to get customers to adopt more of its offerings, is showing significant momentum. Investors initially worried that the company giving away free or discounted products would not pay off as well as management expected over the long term. Regarding the strategy, CEO Nikesh Arora said, “All I want to say is, I wish we had started down that path sooner. The amount of interest and activity around it has certainly been heartening and shows promise.” Management alluded to CrowdStrike’s recent debacle being a potential tailwind for Palo Alto and the rest of the industry, saying it has companies “digging deeper into the technologies being deployed to mitigate these risks.” The company raised its current quarter and full-year outlook slightly, doubling its buyback program to $1 billion in the process. Owned in US and Opportunity Portfolios.

Company of the Week: Eli Lilly

ELI LILLY EARNINGS PRESENTATION

Weekend Reading

Inflation keeps on slowing in Canada in July Headline inflation kept easing in Canada in July to 2.5% year-over-year that was the lowest reading since March 2021. The hurdle for more BoC cuts this year is low and we continue to look for another 25 basis point cut at their next meeting in September. RBC

A 7-Eleven Buyout Would Stretch Japan’s Appetite for M&A The country’s convenience stores have become essential to daily life. That has many fearing the prospect of a foreign takeover. BLOOMBERG

Flash Crashes Are Getting Faster Human nature is the one constant across all market environments but we’re not trading with hand-written trade tickets and chalkboards anymore. The information age has added a Barry Bonds level of HGH to human nature in the market. BEN CARLSON

The Unending Allure Of High Mountains A century after George Mallory’s disappearance on Everest, why do his words, “Because it’s there,” remain an indelible explanation for the human obsession with high places? NOEMA

Everything You Didn’t Know About the Trusty Tape Measure The tape measure is such an ubiquitous household fixture, you probably haven’t thought all that much about it. But there’s more to this tool than meets the eye. Especially the eye of the untrained amateur. ART OF MANLINESS

Summer 2024 Travel Trends Report: The Rise of the ‘Slowcation’ With mental health and wellbeing becoming a priority for many, travelers in summer 2024 are seeking out vacations where they can properly unwind, relax, and leave behind daily stresses, according to our latest seasonal travel trends research. SCOTT DUNN

Why Lawrence of Arabia Still Looks Like a Billion Bucks Discover the secrets behind its iconic look, from the groundbreaking Super Panavision 70 technology to the masterful use of lenses and lighting. Learn how director David Lean and cinematographer Freddie Young crafted some of the most unforgettable images in film history. WATCH

Mr. Market Miscalculates In his latest memo, Howard Marks discusses the reasons for the recent market volatility using one of finance’s classic metaphors: Mr. Market, the figure Benjamin Graham created in 1949 to explain the erratic nature of financial markets. Howard pulls together some of his best writing on investor psychology from the past three decades, adds some of his favorite investing cartoons, and offers a few new observations. He suggests that Mr. Market’s lessons about the behavior of markets are as relevant today as they were 75 years ago. HOWARD MARKS